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Canadian private equity firm Catalyst Capital Group Inc. is attempting again to take Gateway Casinos and Entertainment Ltd. public, as the fund manager faces pressure from some investors to deliver returns.

The initial public offering, filed on Tuesday, is the latest development in Catalyst’s long saga to cash in on the casino company. Catalyst head Newton Glassman has been trying to sell or take Gateway public for years, and even filed paperwork for a Canadian IPO in 2012 that was later withdrawn.

The new IPO, which was filed solely in the United States, comes after Catalyst searched for an outright buyer of Gateway earlier this year. Instead, the company is now looking to unload shares to public investors. The timing, however, is tricky. Since Oct. 1, the Standard and Poor’s 500 stock market index has fallen 9.3 per cent.

The offering comes at a tumultuous time for Catalyst. The firm has struggled with some under-performing investments, including its majority ownership of Callidus Capital Corp., which is a lender to companies that are in financial difficulty. Callidus went public at $14 in 2014, but now trades at $1.65. One of Catalyst’s funds was intended to cash in investments and pay out clients by 2016, but that was moved to 2019.

Gateway’s business mix looks much different now than at the time of its previous IPO attempt. Historically, the company derived most of its revenue from casinos in British Columbia. Gateway acquired assets from the Ontario Lottery and Gaming Corp. over the past two years, which has helped to spread its business across the country. OLG had grouped some of its assets into bundles and sold them.

“Gateway has diversified its earnings stream by region and by property after being awarded three Ontario gaming bundles, which has reduced concentration risk," credit rating agency Moody’s Investors Service wrote in a recent report. Moody’s estimates that more than half of Gateway’s earnings before interest, taxes, depreciation and amortization (EBITDA) will come from Ontario by 2019.

The recent acquisitions have also boosted Gateway’s profit. In 2017, the company lost $65-million. During the first nine months of 2018, it reported a profit of $156-million.

However, the extra earnings have come with added debt. Moody’s gives Gateway a credit rating of B2, which is classified as “junk,” meaning that investing in the company is high-risk, while the S&P credit ratings agency gives the company a B and notes the high debt. S&P calculates the company’s adjusted debt will amount to 6.9 times its EBITDA by the end of 2019.

In a September report, S&P said sales at Canadian casinos are likely to grow by 2 per cent to 4 per cent over the next few years, spurred by underlying economic growth. However, the rating agency also wrote that Gateway will need to spend a lot to modernize its recently acquired casinos, and the "heavy capital outlay for the Ontario assets could weigh on the company’s free operating cash flow.”

The IPO document says proceeds from Gateway’s proposed offering would not be used to pay down any debt. Instead, they will flow to existing shareholders -- namely, Catalyst Capital.

Catalyst declined to comment.

In the IPO filing, Gateway also noted that Mr. Glassman will be replaced on the board of directors by another Catalyst representative once the IPO closes. This summer, Mr. Glassman announced he was taking a medical leave as chief executive of Callidus Capital Corp.

With reports from Jeffrey Jones and Andrew Willis

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